GB Ep 32: What Churn Rate is Acceptable and How to Reduce Churn

Welcome to another episode of Growth Bites. Today we’ll talk about how you can reduce customer churn rate, and I’ll point you to a helpful resource to help you do so.

Churn is the percentage of customers you’re losing on a monthly or yearly basis. [01:24]

Keeping your churn rate below a certain percentage is critical, because if it’s above 10% or 15%, a lot of VCs will look the other way because if you’re losing too many customers, it will be difficult to grow no matter how good your marketing is. [01:48]

There’s a misconception surrounding churn: if you think you have less than 5% monthly churn, it’s okay. [02:15]

In Lincoln Murphy’s blog post, he talks about 5% churn. He has a formula that tells you to take your churn percentage (5%) and subtract it from 1. (1-0.05) But when you take that number to the power of 12 (for one year), you actually get 0.54. 1-0.54 is like taking 100 customers and subtracting 54 of them. 100-54=46 [02:49]

In essence, if you have a 5% churn, this formula shows that you need to make up for 46 of your clients in one year to break even. This is a lot of work. [03:48]

Some software companies have 1% to 2%, sometimes 3%. Having a high churn rate is a momentum killer. [04:35]

If your churn rate is too high, there’s a fundamental problem with your product, and you need to figure out why customers are leaving. [04:51]

Another resource from Lincoln Murphy’s website is a post called 22 Ways to Reduce Churn with Growth Hacking. [05:16]

You can try exit surveys and follow-up emails. [05:29]

Using something like Intercom.io can help you track pre-churn behavior to find out what’s really going on. [05:46]

Disclaimer: As with any digital marketing campaign, your individual results may vary.

Eric Siu (@ericosiu) is the CEO at Single Grain, a digital marketing agency that focuses on paid advertising and content marketing. He contributes regularly to Entrepreneur Magazine, Fast Company, Forbes and more.